Natural gas outlook: Warmest year on record limits consumption

According to a recent report by the National Oceanic and Atmospheric Administration (NOAA), 2012 was the warmest year in the contiguous United States since recordkeeping began in 1895. The average temperature was 55.3 degrees, 3.2 degrees greater than the 20th century average and 1.0 degree greater than the previous record in 1998. The warm year was the result of the combination of a mild winter and a hot summer, and warmer than normal temperatures in every state, not just in isolated regions of the country.

The temperatures in 2012 affected natural gas consumption. Even with lower average natural gas prices, residential and commercial consumption in 2012 was lower than any of the previous 5 years with lower demand for heating. In the electric power sector, weather, relatively low natural gas prices, and a structural shift toward generating more electricity from natural gas-fired power plants contributed to increased natural gas consumption, which started early in 2012. Industrial consumption, which responds both to the economic environment and to weather, was slightly higher in 2012 than in each of the last five years.

Prices:

Natural gas prices are up at most market locations, increasing most significantly in the Northeast. Henry Hub increased from $3.14 per MMBtu last Wednesday to $3.43 yesterday, an increase of 29 cents per MMBtu, or 9 percent. Most trading points increased between 20 and 30 cents per MMBtu week-on-week, with the notable exception of the Northeast. Algonquin Citygate, serving Boston, jumped by $4.57 per MMBtu, an increase of 104 percent over prices at the start of the report period. Transco Zone 6 NY, serving New York City, saw a price increase of $2.59 per MMbtu, up 78 percent Wednesday to Wednesday. Temperatures in the Northeast fell precipitously Tuesday and yesterday, which were the days of the largest price increases. The Midcontinent and Northwest faced low temperatures across the whole report period.

The Nymex futures price rose week-on-week. The Nymex price rose 32 cents per MMBtu over the report period, from $3.113 per MMBtu last Wednesday to $3.435 per MMBtu yesterday. The near-month Nymex price closed just one half cent per MMBtu above the Henry Hub price yesterday. The 12-Month Strip (average of February 2013 to January 2014 contracts) also increased, rising 25 cents per MMBtu over the report period and ending the week at $3.654 per MMBtu. The 24-Month Strip is also trading below $4.00 per MMBtu, closing at $3.864 yesterday.

Total consumption for the report week was down. According to Bentek estimates, overall natural gas consumption for the nation fell by 2.2 percent. The residential/commercial sector, the biggest gas-consuming sector during the winter, consumed 5.4 percent less gas week-on-week. Industrial consumption was also down, falling by 1.6 percent. The decline in total natural gas consumption was partially mitigated by a 3.9 percent increase in natural gas consumed in the electric power sector. The Midcontinent, Southwest, and Pacific Northwest all faced colder temperatures week-on-week, and consumed 42.8 percent, 23.4 percent, and 44.8 percent more gas for electric generation, respectively. These regions are not large consumers of natural gas as a source for electricity, so these large percentages partially result from small base volumes. The Midcontinent and Pacific Northwest regions are not particularly reliant on natural gas as a source for electricity, so these percentages are relative to small bases. The Southeast, the biggest gas-consuming region for electric power, was unseasonably warm over the report week, and consumed 7.3 percent less gas for electric generation.

Total supply for the report week was down. Bentek estimates an overall supply decrease of 1.5 percent for the report period. U.S. gross and dry natural gas production were down 0.7 percent week-on-week and Canadian imports were down 9.3 percent. Imports fell most sharply in the Northeast, dropping by 34.4 percent. LNG imports, which are just a tiny fraction of overall supply, were also down by 8.8 percent.

Storage

Working natural gas in storage decreased to 3,168 Bcf as of Friday, January 11, according to EIA's WNGSR. This represents an implied net withdrawal of 148 Bcf from the previous week. This week's net withdrawal was 4 Bcf larger than the 5-year average net withdrawal of 144 Bcf, and 59 Bcf larger than last year's average net withdrawal of 89 Bcf. Inventories are currently 147 Bcf (4.4 percent) less than last year at this time and 316 Bcf (11.1 percent) greater than the 5-year average.

Temperatures during the storage report week were 4.0 degrees warmer than the 30-year normal temperature and 4.4 degrees cooler than the same period last year. Temperatures in the Lower 48 states averaged 37.1 degrees, compared to 41.6 degrees last year and the 30-year normal of 33.1 degrees. While overall temperatures were a few degrees warmer than normal, temperatures varied somewhat across Census divisions. In the Midwest, the West North Central and East North Central Census divisions were particularly warm, averaging 8.7 and 7.0 degrees warmer, respectively, than the 30-year normal. In the West, the Pacific and Mountain Census divisions were relatively cool, averaging 1.1 and 0.9 degrees cooler, respectively, than the 30-year normal. Heating degree-days nationwide were 12.4 percent below normal and 19.4 percent above last year.